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Justin Bierschwale Bierschwale Appraisals PO Box 154 517 College Street Junction, TX 76849 Ph (325) 446-3052 [email protected] . Terry Argotsinger Stalcup Ag Service, Inc. P O Box 67 910 Flindt Drive Storm Lake, IA 50588 712-732-6462 [email protected]

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Negotiating wind park easements and analyzing comparable sales presented by

Justin Bierschwale

Bierschwale Appraisals

PO Box 154

517 College Street

Junction, TX 76849

Ph (325) 446-3052

[email protected]

Terry Argotsinger

Stalcup Ag Service, Inc.

P O Box 67

910 Flindt Drive

Storm Lake, IA 50588

712-732-6462

[email protected]

Negotiating Wind Park Easements andAnalyzing Comparable Salespresented by




Locating wind parks
Locating Wind Parks

  • Power Grid

  • Wind Velocity

  • State and Federal Mandates (cap and trade)

  • Tax incentives

  • Power demand

  • Will of the people


Mutual desire to

make it compatible for everyone


Cost of construction 1 5 mwh turbine
Cost of Construction1.5 MWh turbine

  • Blades $300,000

  • Generator $1,250,000

  • Transportation $225,000

  • Tower $330,000

  • Materials $400,000

  • Labor $400,000

  • Engineering, Dev., etc $80,000

  • $3,000,000 / 1.5 Mwh = $2,000/Kwh RCN

  • Deprec., O&M, Land rent, RE Tax – $60,000

  • Debt Service ?


Income stream
Income Stream

  • Electricity - $35 to $100 per Mwh at the hub

  • Carbon Credits - $5 to $25 per mmt

  • PTC/ITC/Direct payments - $.021 per Kwh

  • Depreciation – 5 year equipment


Actual production 1 5 mw turbine
Actual Production(1.5 MW Turbine)

  • 4,000,000 Kwh x $.055/Kwh = $220,000

  • 4,000,000 Kwh x $.021/Kwh PTC = $84,000

  • 1.5 Mwh x 2,000 mmt CO2/Mwh x $15/mmt = $45,000

    SO2, NOx – EPA clearing house for pollution credits

    (Meets Electricity needs for 300 people/year)


The queue
The Queue

  • Federal Energy Regulatory Commission - FERC

  • Independent Transmission System Operators - ISOhttp://www.midwestmarket.org/page/Total+Wind+Generation

  • $200,000 to $300,000 for permits

  • Application

  • Feasibility Study

  • System Impact Study

  • Facilities Study

  • 459 to 884 days


Method of negotiation
Method of Negotiation

  • Get legal advice

  • Individually

  • As a group

  • Trustee, LLC – Combine wind rights into one package if rights can be separated under state code

  • Option, Lease, Easement

  • Privacy clause – Agreement and Memorandum


Key terms of agreement
Key Terms of Agreement

  • 3 phases Development – Construction - Operations

  • Rates

  • Site selection

  • Insurance

  • Re-powering

  • Decommissioning

  • Most Favored Nation


Development phase
Development Phase

  • 3 to 5 years

  • State mandates with limits – 7 years

  • http://www.dsireusa.org/

  • $3 to $40 per acre per year


Construction phase
Construction Phase

  • Usually less than one year

  • One time payment

  • Crop Damages

  • Compaction

  • Access

  • Laydown areas

  • Crane paths


Operations phase
Operations Phase

  • 30 to 90 years

  • Fixed Payments - $2,500 - $6,000 per MW

  • CPI-U minimum 2%

  • Royalty – individual tower 3,4,5 or 6%

  • Royalty – prorated

  • Fixed plus royalty

  • Per acre plus royalty – 40/60

  • Renewable energy credits

  • Carbon credits

  • Roads, cables, buildings, substation


Site selection
Site Selection

  • Proposed plat

  • Final plat

  • Landowner approval

  • The larger the turbine the fewer per farm

  • 1.1 fall down distance – state code ?

  • Setbacks from roads, dwellings


Insurance
Insurance

  • State code minimums

  • $2,000,000 to $10,000,000

  • Adjust to inflation


Re powering okay but renegotiate
Re-Powering okay but renegotiate


Decommissioning

5 feet

400 cu yds

Performance bond for 1.5 x cost of removal

180 days


Most favored nation
Most Favored Nation

  • Same terms for all agreements

  • Private negotiation - addendum






Developers aren t stupid current development
DEVELOPERS AREN’T STUPIDCURRENT DEVELOPMENT


Developers aren t stupid tired of waiting for expansion
DEVELOPERS AREN’T STUPIDTIRED OF WAITING FOR EXPANSION

FP&L PRIVATELY BUILT TRANSMISSION LINE


What the transmission companies are saying
WHAT THE TRANSMISSION COMPANIES ARE SAYING

  • $4.93 BILLION IN EXPANSION PROJECTS

  • 2400 MILES OF NEW TRANSMISSION

  • POTENTIAL FOR 18.5 GIGAWATTS IN NEW WIND POWER PROJECTS

  • AEP & DUKE ENERGY – 240 MILES OF 765 KV TRANSMISSION LINES, EST. $1 BILLION

  • COMING ONLINE WITHIN 8 YEARS


Onsite data
ONSITE DATA

  • Anemometers

  • Research Facilities

  • Terrain

  • Neighborhood

  • Existing Turbines

  • Data, Data, Data


Regulations
Regulations

  • Siting

  • Visual & Noise

  • Wildlife Impact

  • Development Stages

  • County Zoning?

  • Safety?

  • Synchronization with Power Grid

  • Property Tax


Who all gets involved
Who All Gets Involved

  • Wind Developer

  • State Government

  • Local Government

  • Federal Agencies

  • Community Groups & Activists

  • Environmental Organizations & Activists

  • General Public


Back to basics 6 functions of 1 00

  • Future Worth of $1.00

  • Future Worth of $1.00 Per Period

  • Sinking Fund Factor

  • Present Worth of $1.00

  • Present Worth of $1.00 Per Period

  • Annuity Worth of $1.00 TODAY

BACK TO BASICS--6 FUNCTIONS OF $1.00


Internal rate of return
INTERNAL RATE OF RETURN

  • RATE THAT SETS THE VALUE OF FUTURE CASH FLOWS EQUAL TO THE CURRENT VALUE

IRR???

10.4%


Sale details
SALE DETAILS

  • 640 Acres

  • Sale Price $1,581,257

  • Land Contributory Value: $2,000/Acre

  • Residual Wind Lease Contribution: $301,257

  • Number of Turbines: 5

  • Lease Period at time of sale: Development







Calculate the irr
CALCULATE THE IRR

IRR = 17.36%


Subject details
SUBJECT DETAILS

  • 320 ACRES

  • ROYALTY PAYMENTS – SAME AS SALE

  • TERMS – SAME AS SALE

  • NUMBER OF TURBINES – 2

  • STAGE ON DATE OF APPRAISAL

    • DEVELOPMENT



Apply it
APPLY IT

17% IRR

NPV = $131,670

320 ACRES X $2,500/ACRE = $800,000

+ CV OF WIND LEASE: $131,000

TOTAL VALUE = $931,000


What ifs justin s fuzzy logic
What Ifs: Justin’s Fuzzy Logic

  • What if the Subject already had turbines producing and had 5 years of payment history?

  • What if the Subject sat right next to an expanding wind farm but did not yet have a lease in place?


Things to consider
Things to Consider

  • Make certain you have measured value as it contributes to the whole package, i.e. avoid flat out summation.

    • Extract Rates as they relate to contributory value, not as they stand separate and apart from the land.

  • Extract and Apply in the exact same way.

    • If you include bonus payments in extraction, include them in application, etc.

  • Step Away from the ledge at the end of the day and think through your conclusions. Are they logical?



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